Investment and Insurance Strategies For Life

Technology Trend: How Blockchain Could Impact the Future

Blockchain is a data structure used to create a digital ledger shared among a distributed network of computers. It was initially designed for the peer-to-peer exchange of the virtual currency bitcoin.

However, businesses and governments worldwide are now exploring blockchain technologies as they seek to improve transparency, increase productivity, and reduce costs. Investment in blockchain initiatives has been estimated to reach $700 million in 2018 as companies race to influence what might become common industry standards.1

Control by Consensus

Blockchain provides all network participants with simultaneous access to a single body of strongly encrypted data. Each individual (or node) can enter new data, but a majority of nodes on the network must verify the addition before it becomes part of the permanent record.

Each transaction is time stamped and linked to the prior transaction, forming a series of blocks in a digital chain. This creates an audit trail each time data is changed, helping to ensure the integrity and authenticity of the information. Because no third-party intermediary (or central authority) is needed, transactions can be completed instantaneously and at a lower cost.

Range of Possibilities

A blockchain can be public (open) or private (closed). Any system or business that relies on a database could be a candidate for blockchain-based innovation. A blockchain can also be coded to execute or enforce smart contracts automatically (without an intermediary) when certain conditions are met. As a result, businesses are already developing and testing some potentially game-changing applications.

Financial markets. The financial industry is researching how the technology could be used to protect sensitive data, increase speed, and cut costs for electronic payments, securities trading, and lending.2

Supply chains. Retailers can hold each link in their supply chains accountable by tracing goods from origin to store, enhancing product safety while discouraging tampering and fraud.3

Medical records. Systems are being designed to store health data that can be conveniently shared among patients, doctors, hospitals, and insurers while protecting patient privacy.4

Digital rights. Musicians, photographers, artists, and media businesses could more easily monetize, track, and keep control over the use of their creations, which could reduce piracy.5

Despite the heightened levels of interest and investment in blockchain, deployments are still fairly rare, and widespread adoption could be years away. Some factors slowing the pace of adoption are governance issues, a lack of regulatory frameworks, and a shortage of professionals with blockchain skills.6

In the longer term, however, blockchain could be a transformative and/or disruptive force that creates a new set of winners and losers. Speedy and successful implementation may deliver a competitive advantage to some companies while punishing others that don’t keep up with the pace of change. There may also be some societal costs, such as high energy consumption from running millions of powerful computers, and the technology’s potential to displace a large number of human workers.

As an investor, you should keep in mind that new technology ventures are often risky. Some blockchain projects may turn out to be viable and profitable, but many others could fail.

Bad actors are also trying to capitalize on the blockchain buzz by luring investors into highly speculative investments and some outright scams.7 So you should be wary of a company’s claims regarding blockchain — especially if an investment offer is unsolicited and Internet based — and never wire money to pay for such an offer.

All investing involves risk, including the possible loss of principal.

Robert Edgin is a Colorado based multiple line insurance asgent representing American National Insurance Company and American National Property And Casualty Company. Robert Edgin is licensed to sell insurance products in the following states: CO

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